Cigna-Anthem Merger Conflict Continues with Countersuit

As expected, Anthem Inc. ANTM has filed a countersuit against Cigna Corp. CI, seeking a temporary restraining order to enjoin it from terminating their merger agreement. This move by Anthem is a retaliation to the suit filed by Cigna against Anthem a day ago, seeking the breakup fee of $1.85 billion and other charges amounting to $13 billion on account of premium that Cigna shareholders did not realize as a result of the failed merger process.

Last month, Anthem postponed the merger date to April end to buy time. The company had hopes of the merger materializing under the Trump administration and planned to seek a quick appeal of the Court decision that blocked it.

Anthem and Cigna were already in a rough patch. Since the very beginning, Anthem continued its pursuit of Cigna by creating pressure on its board members despite the latter’s repeated rejection of the takeover proposal.

Anthem was also ready to go public with its proposal offer if Cigna did not consent to the deal. With time, the differences between the two companies have broadened and now the fight is in the open.

Since the announcement of the merger, shares of both Anthem and Cigna have underperformed the Zacks categorized Health Maintenance Organization industry by generating returns of 8.26% and 0.65% respectively compared with the sector’s gain of 21.68%. The share price performance of each of the players reflects the pessimism that surrounded their stocks following the merger-related uncertainty and investor perception that they may finally be blocked.

Anthem also charged Cigna for its coldness toward the merger and has alleged that its ways were aimed at sabotaging the deal. Anthem pointed out that Cigna’s conduct at each stage of the merger, right from its integration efforts to the appeal efforts, reflected its reluctance to pursue and seal the deal.

With its countersuit, Anthem has blamed the company of improper use of its rights to terminate the merger. Anthem also argued that Cigna did not carry out its obligations which led to the deal hitting the rock and that the latest lawsuit is yet another step to terminate it.

Not only Anthem, Cigna’s intention also caught the attention of the District Court and the national media. The court could not ignore the apparent reluctance of Cigna that speak against the merger.

Anthem and Cigna’s efforts toward the deal have been exactly opposite. While Anthem’s efforts were pro-merger, Cigna was against it.

There was friction between the companies, with each blaming the other. We now believe the fight has reached a stage where the focus is on the breakup fee and damages rather than the sealing of the deal.

Another mega merger of Aetna Inc. AET with Humana Inc. HUM has also been blocked.

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